The department may cause the insertion of provisions in any
contract for the performance of such extra work and the furnishing of
materials therefor by the contractor as the department requires for
the proper completion or construction of the whole work contemplated,
if the bidders have equal opportunity of knowing the proposed terms
for the extra work.

If the director deems that a contractor has failed to supply
an adequate working force, or material of proper quality, or has
failed to comply with Section 10262, or has failed in any other
respect to prosecute the work with the diligence and force specified
by the contract, the director may:
(a) After written notice of at least five days to the contractor,
specifying the defaults to be remedied, provide any such labor or
materials and deduct the cost from any money due or to become due to
the contractor under the contract; or
(b) If he considers that the failure is sufficient ground for such
action, he may give written notice of at least five days to the
contractor and the contractor's sureties, that if the defaults are
not remedied the contractor's control over the work will be
terminated.

Upon such termination, the director may take possession of
and use all or any part of the contractor's materials, tools,
equipment, and appliances upon the premises to complete the contract.
Thereupon, he may permit the surety to complete or cause the
contract work to be completed, or he may direct that all or any part
of the work be completed by day's labor or by employment of other
contractors on informal contracts, or both.

Such informal contracts may be awarded only after a proposal
form has been prepared, a copy is served upon the contractor whose
control has been terminated, and upon his surety, and three days
allowed thereafter so that he may cause others to bid. Any person who
is prequalified therefor under Article 4 may bid on informal
contracts.

If the control of a contractor is terminated or he abandons
the work, and the work is performed by day's labor or informal
contract as provided in Section 10255, he is not entitled to receive
any portion of the amount to be paid under the contract until it is
fully completed. After completion, if the unpaid balance exceeds the
sum of the amount expended by the state in finishing the work, plus
all damages sustained or to be sustained by the state, the excess not
otherwise required by law to be retained shall be paid to the
contractor, but if such sum exceeds the unpaid balance, the
contractor and his surety are liable to the state for the excess. If
the surety completes the contract work, as provided in Section 10255,
such surety shall be subrogated to money due under the contract and
to money which shall become due in the course of completion by the
surety, to the extent provided by law.

On the completion of the contract, the original contractor
is entitled to the return of all his unused materials, and his
equipment, tools, and appliances, except that he shall have no claim
on account of usual and ordinary depreciation, loss, and wear and
tear.

The notices required by this article may be served on the
contractor or on his agent having charge of the work, personally, or
by registered mail addressed to the contractor or his agent, or, if
neither can be located or their addresses are unknown, by posting in
a conspicuous place upon the premises of the project.

(a) Payments upon contracts shall be made as the department
prescribes upon estimates made and approved by the department, but
progress payments shall not be made in excess of 100 percent of the
percentage of actual work completed plus a like percentage of the
value of material delivered on the ground or stored subject to or
under the control of the state, and unused, except as otherwise
provided in this section. The department shall withhold not more than
5 percent of the contract price until final completion and
acceptance of the project. However, at any time after 95 percent of
the work has been completed, the department may reduce the funds
withheld to an amount not less than 125 percent of the estimated
value of the work yet to be completed, as determined by the
department, if the reduction has been approved, in writing, by the
surety on the performance bond and by the surety on the payment bond.
The Controller shall draw his or her warrants upon estimates so made
and approved by the department and the Treasurer shall pay them. The
funds may be released by electronic transfer if that procedure is
requested by the contractor, in writing, and if the department has,
in place at the time of the request, the mechanism for the transfer.
(b) (1) Notwithstanding subdivision (a), when the director of the
department has made a finding prior to the bid that a specified
project is substantially complex and therefore requires a higher
retention amount than 5 percent, and the department includes in the
bid documents details explaining the basis for the finding and the
actual retention amount, then payments upon contracts by the
department shall be made as the department prescribes upon estimates
made and approved by the department. However, progress payments shall
not be made in excess of 95 percent of the percentage of actual work
completed, plus a like percentage of the value of material delivered
on the ground or stored, subject to, or under the control of the
state, and unused, except as otherwise provided in this section. At
any time after 95 percent of the work has been completed, the
department may reduce the funds withheld to an amount not less than
125 percent of the estimated value of the work yet to be completed,
as determined by the department, if the reduction has been approved,
in writing, by the surety on the performance bond and by the surety
on the payment bond. The Controller shall draw his or her warrants
upon estimates so made and approved by the department and the
Treasurer shall pay them with funds appropriated therefor. The funds
may be released by electronic transfer if that procedure is requested
by the contractor, in writing, and if the department has, in place
at the time of the request, the mechanism for the transfer.
(2) Any finding by the director of a department that a project is
substantially complex shall include a description of the specific
project and why it is a unique project that is not regularly,
customarily, or routinely performed by the agency or licensed
contractors.
(c) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.

(a) On and after January 1, 2018, payments upon contracts
shall be made as the department prescribes upon estimates made and
approved by the department, but progress payments shall not be made
in excess of 95 percent of the percentage of actual work completed
plus a like percentage of the value of material delivered on the
ground or stored subject to or under the control of the state, and
unused, except as otherwise provided in this section. The department
shall withhold not less than 5 percent of the contract price until
final completion and acceptance of the project. However, at any time
after 95 percent of the work has been completed, the department may
reduce the funds withheld to an amount not less than 125 percent of
the estimated value of the work yet to be completed, as determined by
the department, if the reduction has been approved, in writing, by
the surety on the performance bond and by the surety on the payment
bond. The Controller shall draw his or her warrants upon estimates so
made and approved by the department and the Treasurer shall pay
them. The funds may be released by electronic transfer if that
procedure is requested by the contractor, in writing, and if the
public entity has, in place at the time of the request, the mechanism
for the transfer.
(b) This section shall become operative on January 1, 2018.

(a) Any state agency which fails to make any progress
payment within 30 days after receipt of the payment request from a
contractor on a construction contract for an undisputed payment
request, which was properly submitted by the contractor to the
agency, shall pay interest to the contractor equivalent to the legal
rate set forth in subdivision (a) of Section 685.010 of the Code of
Civil Procedure. Any state agency which independently calculates the
amount due on a progress payment and which fails to make a progress
payment within 30 days of the first submittal of the estimate for
each contract by the engineer, shall pay interest to the contractor
equivalent to the legal rate set forth in subdivision (a) of Section
685.010 of the Code of Civil Procedure. In the event that the payment
is not made within 30 days of receipt of the contractor's request or
the first submittal by the engineer, and the Controller has
processed the payment within 14 days of receipt of the request or
submittal, the contracting state agency shall pay interest to the
contractor equivalent to the legal rate set forth in subdivision (a)
of Section 685.010 of the Code of Civil Procedure. In the event that
the payment is not made within 30 days of receipt of the contractor's
request or the first submittal by the engineer, and the contracting
state agency has processed the payment within 16 days after receipt
of the request or submittal, the Controller shall pay interest as
provided in Section 685.010 of the Code of Civil Procedure.
For purposes of this section, a payment request shall be
considered properly executed if funds are available for payment of
the payment request, and payment is not delayed due to an audit
inquiry by the Controller.
(b) Upon receipt of a payment request, each agency shall require:
(1) That each payment request be reviewed as soon as practicable
after receipt for the purpose of determining that a payment request
is a proper payment request.
(2) Any payment request determined not to be a proper payment
request suitable for payment shall be returned as soon as
practicable, but not later than seven days, after receipt, specifying
the reasons that the payment request is not a proper payment
request.
(3) The number of days available to a state agency to make a
timely payment of payment request without incurring interest shall be
reduced by the number of days by which an agency exceeds the
requirements of paragraph (2).

The contractor shall pay to his or her subcontractors,
within seven days of receipt of each progress payment, the respective
amounts allowed the contractor on account of the work performed by
his or her subcontractors, to the extent of each subcontractor's
interest therein. The payments to subcontractors shall be based on
estimates made pursuant to Section 10261. Any diversion by the
contractor of payments received for prosecution of a contract, or
failure to reasonably account for the application or use of the
payments constitutes ground for actions prescribed in Section 10253,
in addition to disciplinary action by the Contractors' State License
Board. The subcontractor shall notify, in writing, the Contractors'
State License Board and the department of any payment less than the
amount or percentage approved for the class or item of work as set
forth in Section 10261.

(a) Notwithstanding any other law, a prime contractor or
subcontractor shall pay to any subcontractor, not later than seven
days after receipt of each progress payment, the respective amounts
allowed the contractor on account of the work performed by the
subcontractors, to the extent of each subcontractor's interest
therein. In the event that there is a good faith dispute over all or
any portion of the amount due on a progress payment from the prime
contractor or subcontractor to a subcontractor, then the prime
contractor or subcontractor may withhold no more than 150 percent of
the disputed amount.
Any contractor who violates this section shall pay to the
subcontractor a penalty of 2 percent of the amount due per month for
every month that payment is not made. In any action for the
collection of funds wrongfully withheld, the prevailing party shall
be entitled to his or her attorney's fees and costs.
(b) This section shall not be construed to limit or impair any
contractual, administrative, or judicial remedies otherwise available
to a contractor or a subcontractor in the event of a dispute
involving late payment or nonpayment by a contractor or deficient
subcontract performance or nonperformance by a subcontractor.
(c) On or before September 1 of each year, the head of each state
agency shall submit to the Legislature a report on the number and
dollar volume of written complaints received from subcontractors and
prime contractors on contracts in excess of three hundred thousand
dollars ($300,000), relating to violations of this section.

(a) Provisions shall be included in any invitation for bid
and in any contract documents to permit the substitution of
securities for any moneys withheld by a public agency to ensure
performance under a contract. At the request and expense of the
contractor, securities equivalent to the amount withheld shall be
deposited with the State Treasurer or, a state or federally chartered
bank in this state, as the escrow agent, who shall then pay the
moneys to the contractor. Upon satisfactory completion of the
contract, the securities shall be returned to the contractor.
(b) Alternatively, the contractor may request and the owner shall
make payment of retentions earned directly to the escrow agent. The
contractor may direct the investment of the payments into securities
and the contractor shall receive the interest earned on the
investments upon the same terms provided for in this section for
securities deposited by the contractor. Upon satisfactory completion
of the contract, the contractor shall receive from the escrow agent
all securities, interest, and payments received by the escrow agent
from the owner, pursuant to the terms of this section.
(c) Alternatively, and subject to the approval and at the sole
discretion of the public agency, the payment of retentions earned may
be deposited directly with a person licensed under Division 6
(commencing with Section 17000) of the Financial Code as the escrow
agent. Upon written request of an escrow agent who has not been
approved by the public agency under this subdivision, the public
agency shall provide written notice to that escrow agent within 10
business days of receipt of the request indicating the reason or
reasons for not approving that escrow agent. An escrow agent that has
been disapproved by the public agency may not maintain any cause of
action of any nature against the state or any public agency, officer,
agent, or employee of any public agency, in connection with the
disapproval of that escrow agent. The payments shall be deposited in
a trust account with a federally chartered bank or savings
association within 24 hours of receipt by the escrow agent. The
contractor shall not place any retentions with the escrow agent in
excess of the coverage provided to that escrow agent pursuant to
subdivision (b) of Section 17314 of the Financial Code. In all
respects not inconsistent with this subdivision, the remaining
provisions of this section shall apply to escrow agents acting
pursuant to this subdivision. In addition, an escrow agent subject to
this subdivision shall maintain insurance to cover negligent acts
and omissions of the escrow agent in connection with the handling of
retentions under this section in an amount not less than one hundred
thousand dollars ($100,000) per contract, executed by an admitted
insurer and in a form satisfactory to the public agency.
(d) Securities eligible for investment under this section shall
include those listed in Section 16430 of the Government Code, bank or
savings and loan certificates of deposit, interest-bearing demand
deposit accounts, standby letters of credit, or any other security
mutually agreed to by the contractor and the public agency.
The contractor shall be the beneficial owner of any securities
substituted for moneys withheld and shall receive any interest
thereon.
Failure to include the provisions prescribed by this section in
bid and contract documents shall void any provisions for performance
retentions in a public agency contract.
(e) (1) Any contractor who elects to receive interest on moneys
withheld in retention by a public agency shall, at the request of any
subcontractor, make that option available to the subcontractor
regarding any moneys withheld in retention by the contractor from the
subcontractor. If the contractor elects to receive interest on any
moneys withheld in retention by a public agency, then the
subcontractor shall receive the identical rate of interest received
by the contractor on any retention moneys withheld from the
subcontractor by the contractor, less any actual pro rata costs
associated with administering and calculating that interest. In the
event that the interest rate is a fluctuating rate, the rate for the
subcontractor shall be determined by calculating the interest rate
paid during the time that retentions were withheld from the
subcontractor. If the contractor elects to substitute securities in
lieu of retention, then, by mutual consent of the contractor and
subcontractor, the subcontractor may substitute securities in
exchange for the release of moneys held in retention by the
contractor.
(2) This subdivision shall apply only to those subcontractors
performing more than five percent of the contractor's total bid.
(3) No contractor shall require any subcontractor to waive any
provision of this section.
(f) The Legislature hereby finds and declares that the provisions
of this section are of statewide concern and are necessary to
encourage full participation by contractors and subcontractors in
public contract procedures.
(g) An escrow agreement used pursuant to this section shall be
null, void, and unenforceable unless it is substantially similar to
the following form:

ESCROW AGREEMENT
FOR
SECURITY DEPOSITS IN LIEU OF RETENTION
This Escrow Agreement is made and entered into
by and between___________________________________
_____________________ whose address
is_________________________
_____________________ hereinafter called
"owner,"
_____________________ whose address
is_________________________
_____________________ hereinafter called
"contractor,"
_____________________ and
whose address
_____________________ is_________________________
hereinafter called "escrow
agent."

For the consideration hereinafter set forth, the owner,
contractor, and escrow agent agree as follows:
(1) Pursuant to Section 10263 of the Public Contract Code of the
State of California, the contractor has the option to deposit
securities with the escrow agent as a substitute for retention
earnings required to be withheld by the owner pursuant to the
construction contract entered into between the owner and contractor
for ____ in the amount of ____ dated ____ (hereafter referred to as
the "contract"). Alternatively, on written request of the contractor,
the owner shall make payments of the retention earnings directly to
the escrow agent. When the contractor deposits the securities as a
substitute for the contract earnings, the escrow agent shall notify
the owner within 10 days of the deposit. The market value of the
securities at the time of the substitution shall be at least equal to
the cash amount then required to be withheld as retention under the
terms of the contract between the owner and contractor. Securities
shall be held in the name of the ____, and shall designate the
contractor as the beneficial owner.
(2) The owner shall make progress payments to the contractor for
those funds which otherwise would be withheld from progress payments
pursuant to the contract provision, provided that the escrow agent
holds securities in the form and amount specified above.
(3) When the owner makes payment of retentions earned directly to
the escrow agent, the escrow agent shall hold them for the benefit of
the contractor until such time as the escrow created under this
contract is terminated. The contractor may direct the investment of
the payments into securities. All terms and conditions of this
agreement and the rights and responsibilities of the parties shall be
equally applicable and binding when the owner pays the escrow agent
directly.
(4) The contractor shall be responsible for paying all fees for
the expenses incurred by the escrow agent in administering the escrow
account. These expenses and payment terms shall be determined by the
contractor and escrow agent.
(5) The interest earned on the securities or the money market
accounts held in escrow and all interest earned on the interest shall
be for the sole account of contractor and shall be subject to
withdrawal by contractor at any time and from time to time without
notice to the owner.
(6) The contractor shall have the right to withdraw all or any
part of the principal in the escrow account only by written notice to
the escrow agent accompanied by written authorization from the owner
to the escrow agent that the owner consents to the withdrawal of the
amount sought to be withdrawn by contractor.
(7) The owner shall have a right to draw upon the securities in
the event of default by the contractor. Upon seven days' written
notice to the escrow agent from the owner of the default, the escrow
agent shall immediately convert the securities to cash and shall
distribute the cash as instructed by the owner.
(8) Upon receipt of written notification from the owner certifying
that the contract is final and complete, and that the contractor has
complied with all requirements and procedures applicable to the
contract, the escrow agent shall release to the contractor all
securities and interest on deposit less escrow fees and charges of
the escrow account. The escrow shall be closed immediately upon
disbursement of all moneys and securities on deposit and payments of
fees and charges.
(9) The escrow agent shall rely on the written notifications from
the owner and the contractor pursuant to Sections (1) to (8),
inclusive, of this agreement and the owner and contractor shall hold
the escrow agent harmless from the escrow agent's release,
conversion, and disbursement of the securities and interest as set
forth above.
(10) The names of the persons who are authorized to give written
notice or to receive written notice on behalf of the owner and on
behalf of the contractor in connection with the foregoing, and
exemplars of their respective signatures are as follows:

On behalf of the owner: On behalf of the
contractor:
________________________ _______________________
Title Title
________________________ _______________________
Name Name
________________________ _______________________
Signature Signature
________________________ _______________________
Address Address
On behalf of the escrow
agent:
________________________
Title
________________________
Name
________________________
Signature
________________________
Address
At the time the escrow account is opened, the
owner and contractor shall deliver to the
escrow agent a fully executed counterpart of this
Agreement.
IN WITNESS WHEREOF, the parties have executed
this Agreement by their proper officers on the
date first set forth above.
Owner Contractor
________________________ _______________________
Title Title
________________________ _______________________
Name Name
________________________ _______________________
Signature Signature

(a) With the exception of projects over water requiring
marine access, and which have a contract amount greater than
twenty-five million dollars ($25,000,000), in addition to the
provisions for partial payment made in Section 10261, the department
may make partial payments for the mobilization costs of a contract
subject to this chapter, not to exceed the following:
(1) When 5 percent of the original contract amount is earned, 50
percent of the amount bid for mobilization, or 5 percent of the
original contract amount, whichever is lesser, may be paid.
(2) When 10 percent of the original contract amount is earned, 75
percent of the amount bid for mobilization or 7.5 percent of the
original contract amount, whichever is lesser, may be paid.
(3) When 20 percent of the original contract amount is earned, 95
percent of the amount bid for mobilization, or 9.5 percent of the
original contract amount, whichever is lesser, may be paid.
(4) When 50 percent of the original contract amount is earned, 100
percent of the amount bid for mobilization, or 10 percent of the
original contract amount, whichever is lesser, may be paid.
(5) Upon completion of all work on the project, payment of any
amount bid for mobilization in excess of 10 percent of the original
contract amount will be paid.
(b) For projects over water requiring marine access, and with a
contract amount greater than twenty-five million dollars
($25,000,000), in addition to the provisions for partial payment made
in Section 10261, the department may make partial payments for the
mobilization costs of a contract subject to this chapter, not to
exceed the following:
(1) When 1 percent of the original contract amount is earned, 50
percent of the amount bid for mobilization, or 1 percent of the
original contract amount, whichever is lesser, may be paid.
(2) When 2.5 percent of the original contract amount is earned, 60
percent of the amount bid for mobilization, or 2.5 percent of the
original contract amount, whichever is lesser, may be paid.
(3) When 5 percent of the original contract amount is earned, 75
percent of the amount bid for mobilization, or 5 percent of the
original contract amount, whichever is lesser, may be paid.
(4) When 15 percent of the original contract amount is earned, 95
percent of the amount bid for mobilization, or 10 percent of the
original contract amount, whichever is lesser, may be paid.
(5) When 40 percent of the original contract amount is earned, 100
percent of the amount bid for mobilization, or 15 percent of the
original contract amount, whichever is lesser, may be paid.
(6) Upon completion of all work on the project, payment of any
amount bid for mobilization in excess of 15 percent of the original
contract amount shall be paid.
This subdivision shall apply only to contracts that are advertised
subsequent to the date that the act adding this subdivision becomes
effective.

A claim pursuant to Part 3 (commencing with Section 900) of
Division 3.6 of Title 1 of the Government Code is not required, but
legal action on any claim shall be commenced within the time period
specified in Section 10240.1. The department may compromise or
otherwise settle any claims arising from the contract at any time.